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Reconsidering Canada Post’s Monopoly

Canada Post announced recently that it would cease delivering regular mail to urban residents and that, instead, it is moving forward with plans to service community mailboxes beginning in 2014. In addition, the Canadian crown corporation is increasing the price of stamps from $0.63 to $1, representing a 59 per cent increase in postage costs for first-class priority mail.

Both developments will purportedly save the company between $500 and $700 million annually, despite criticisms that they will further dissuade Canadians from using its service.

Nevertheless, Canada Post’s announcements reflect its inability to adapt to current realities.

Andrew Coyne, writing for the National Post, suggests that, “Only in a world entirely insulated from competitive reality would the appropriate response to declining demand be higher prices and worse service.” Indeed, Canada Post is nearly doubling the cost of postage to service a much smaller route.

Furthermore, the Canadian Union of Postal Workers (CUPW), formerly the Canadian Postal Employees Association (CPEA), has engaged in a number of disputes with the federal government regarding the threat of innovation. In the 1970s, for instance, CUPW clashed with Ottawa over the impact that mail automation had on existing job classifications, wages, and employment security. To be clear, CUPW opted to suspend its services, rather than adapt to changing circumstances–typical behaviour of a monopolist.

Canada Post, however, is not to blame. Instead, the Internet, e-billing, online banking–efficient services that provide convenience to consumers at a much lower cost–are responsible for the company’s decay. Whatever the reason, though, Canadians are voting with their mail.

There is no shortage of theoretical and empirical research demonstrating that monopolies thrive on scarcity. In a non-competitive market, for instance, where a single entity retains total control over the production and sale of an inelastic commodity (such as, until recently, first-class priority mail), there is an incentive to restrict its supply, since scarcity buttresses demand. Consequently, demand begins to exceed its available supply and prices rise in accordance. Because the aforementioned firm retains monopoly control over an inelastic commodity, however, consumers must either consume the product at a higher price or abstain altogether. In any case, the consumer suffers.

For instance, the Canada Post Corporation Act affords Canada Post statutory monopoly protection that shields its first-class mail operations from private-sector competition, making it illegal for private couriers, such as UPS and Purolator, to deliver a letter for less than three times the price of a stamp. This, in effect, artificially restricts the supply of first-class mail services. As a result, prices for both Canada Post and private sector first-class mail operations increase (by political compulsion, instead of economic predilection).

The difference, of course, is that first-class mail service is no longer an inelastic commodity. There are now alternatives available to consumers at a much lower cost operating outside the realm of Canada Post’s monopoly and, therefore, the Act’s ability to constrain consumers is limited (and, thus, wasteful).

Not to mention that several countries have either deregulated or privatized their national courier services with great success. From Australia, Britain, and New Zealand to Austria, Germany, and the Netherlands, for instance, deregulation and privatization has reduced prices and improved services without any real disruption in delivery services.

Considering Canada Post’s waning support, its inability to service consumers, and the advent of more efficient alternatives, it is time for Ottawa to do the same.

Shaun Fantauzzo is a policy analyst and the AIMS on Campus project coordinator at the Atlantic Institute for Market Studies